Watching the Polls

Historically, the S&P 500 been unable to post significant trending gains while the Investor's Intelligence bearish figure is 25% or lower

By Paul Cherney

A shakeout on Friday morning will probably be treated by the markets as a short-term buying opportunity and prices should lift from session lows and could post gains on the day. But a significant trend higher is not really likely right now. Downside and upside appear limited.

This week, the Investor's Intelligence sentiment poll of newsletter writers posted a "bearish" reading of 24.4%. Since 1987, there have only been 14 periods of time that the Investor's Intelligence "bearish" readings have been at 25.0% or lower. I looked at price performance for the S&P 500 during the consecutive weeks when the "bearish" figure stayed at 25% or below. The most important observation is that historically, the S&P 500 has demonstrated an inability to post significant trending gains while the "bearish" figure is 25% or lower.

Of the periods covered, the biggest loss was the 7/17/98 to 7/31/98 period when the S&P 500 lost 5.57%, the biggest gain was 2.25% which occurred during the time 3/22/91-5/10/91 (these are based on weekly data, Friday closes, because the Investor's Intelligence poll is weekly). The average performance of all the periods was a loss of 0.98%, so, based on this measure of sentiment, a sideways market is very possible until the "bearish" level moves back above 25.0%.

The next layer of Nasdaq support starts at 1488. The index has risk for prints in the focus of support which is 1479-1469 and if that were to happen, it is a likely spot for short-term bears to cover shorts; short-term bulls will probably take a shot at the longside for an oversold bounce.

The Nasdaq has immediate resistance at 1498-1510, then 1522-1531.82; the next resistance is 1543-1595, with a focus of 1547-1568.

The S&P 500 has immediate intraday resistance at 927-931.79. The price action surrounding the highs in December, 2002, and January, 2003, for the S&P 500 has created some pretty consistent resistance in the 930-935.05 area. The next resistance (established in August, 2002, and the beginning of July, 2002) is 944-965, with a focus of 951-957. The resistance starts really at 939 but it does not become organized (consistent sideways price action) until 942-965, especially strong resistance lies with prints of 951-957.

Immediate intraday support for the S&P 500 is 924-918, then 915-910.

Cherney is chief market analyst for Standard & Poor's

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